An Empirical Analysis of Risk, Incentives and the Delegaton of Worker Authority

21 Pages Posted: 13 Mar 2012

See all articles by Fidan Ana Kurtulus

Fidan Ana Kurtulus

University of Massachusetts Amherst

Jed DeVaro

California State University, East Bay

Date Written: March 13, 2012

Abstract

The authors empirically test Prendergast’s (2002) theory that incorporates the delegation of worker authority into the principal-agent model to explain the lack of consistent empirical support for a tradeoff between risk and incentives. Using data from the 1998 British WERS, the authors investigate whether there is: 1) evidence of a risk-incentives tradeoff as predicted by the principal-agent model; 2) evidence of a positive relationship between incentive pay and the delegation of worker authority; 3) evidence of a positive relationship between risk and authority; 4) support for the main testable implication of Prendergast’s model, namely that the evidence favoring a risk-incentives tradeoff should strengthen when authority controls are added to the empirical model. The answers are affirmative for all four questions, thereby providing evidence clarifying the relationship between risk and incentive pay and how managers optimally bundle incentive pay and the delegation of worker decision rights to cope with risk.

Keywords: Agency Theory, Risk versus Incentives Tradeoff, Delegation of Worker Authority

JEL Classification: D21, D23, D81, M51, M52, M54

Suggested Citation

Kurtulus, Fidan Ana and DeVaro, Jed, An Empirical Analysis of Risk, Incentives and the Delegaton of Worker Authority (March 13, 2012). Industrial and Labor Relations Review, Vol. 63, No. 4, 2010. Available at SSRN: https://ssrn.com/abstract=2021549

Fidan Ana Kurtulus (Contact Author)

University of Massachusetts Amherst ( email )

Department of Operations and Information Managemen
Amherst, MA 01003
United States

Jed DeVaro

California State University, East Bay ( email )

25800 Carlos Bee Boulevard
Hayward, CA California 94542
United States
1(510)885-3289 (Phone)

HOME PAGE: http://www2.cbe.csueastbay.edu/fac_page/final/index.php?id=308

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